Court: IBM owes Indiana more than $70M in automation dispute

Indiana's Supreme Court has decided IBM Corp. must pay the state more than $70 million over the company's failed effort to automate much of the state's welfare services.

The court ruling released Wednesday upholds lower court rulings in the case that began in 2010 when Indiana and Armonk, New York-based IBM sued each other after then-Gov. Mitch Daniels cancelled the company's $1.3 billion contract to privatize and automate the processing of applications for food stamps, Medicaid and other benefits.

The state appeals court affirmed in September a decision by Marion County Judge Heather Welch to award the state $128 million in damages while crediting IBM with nearly $50 million in fees owed by the state. The Supreme Court rejected IBM's arguments that it was owed more interest payments from the state.

Indiana and IBM sued each other in 2010 after Daniels, a Republican, cancelled the $1.3 billion contract that his administration reached with the company to privatize and automate the processing of Indiana's welfare applications.

Under that deal, an IBM-led team of vendors worked to process applications for food stamps, Medicaid and other benefits. Residents could apply for the benefits through call centers, the internet and fax machines. But the contract was pulled in late 2009, less than three years into the 10-year deal, following complaints about long wait times, lost documents and improper rejections.

The Indiana Supreme Court found in March 2016 that IBM had breached its state contract, and directed the trial court to calculate the damages IBM owed the state. Four months later, the high court ordered the appointment of a new judge to oversee the case after the original judge ruled Indiana could not recover damages because it had not adequately proven the costs it was seeking. Welch was then appointed to handle the case.

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